Jan 19, 2013

SEBI & RBI Updates

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SEBI Updates

SEBI in its Board Meeting held on January 18, 2013, Friday took various decisions under various Regulations. A brief synopsis of some of the decisions is given herein below:
  1. Amendment to SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations, 2011)

    The Board took note of the concerns raised during the implementation of Takeover Regulations, 2011 and approved the following:

    1. Relevant date for making Public Announcement and determination of offer price in cases of combined modes of acquisition shall be the earliest date on which obligations are triggered. This will, however, not be applicable if the subsequent trigger is on account of willful and deliberate act on the part of the acquirer.
    2. Relevant date for making Public Announcement and determination of offer price in cases of preferential allotment shall be the date of board resolution authorizing the preferential allotment instead of the date on which special resolution is passed under Section 81(1A) of the Companies Act, 1956.
    3. Aligning disclosure requirements under Takeover Regulations with SEBI (Prohibition of Insider Trading) Regulations, 1992
    4. Clarification on reckoning the period of ninety days in case of increase of voting rights due to buyback by target company – In such a case, the period of ninety days will be reckoned from the date of closure of the buyback offer.
    5. Norms for completion of market purchase of shares made during the offer period – It has been decided that market purchases made during the open offer period can be completed during the open offer period subject to such shares being kept in an escrow account. Further, these shares can be transferred from the escrow account to the name of the acquirer after the expiry of 21 working days from the date of the detailed public statement, provided the acquirer deposits 100 percent of the consideration payable in cash in the escrow account.
  2. Review of Offer for Sale (OFS) through stock exchange mechanism

    As the deadline of June 2013 to achieve minimum public shareholding is fast approaching and large number of promoters is expected to offload their shares through OFS route, the Board has approved the following changes in the OFS mechanism to make it more economical, efficient and transparent:

    1. Margin Requirement for Institutional orders placed in OFS:

      • Institutions may place orders/bids with 100% upfront margin and modification/cancellation of such orders/bids shall be permitted. Custodian confirmation shall be within the trading hours. However, the settlement of funds and securities shall take place on T+1 day.
      • Institutions may place orders without upfront margin in line with secondary market practice. However such bids/orders cannot be modified /cancelled, except upward revision in the price or quantity. Confirmation by custodian and settlement shall be as per the rules for secondary market transactions.
    2. Visibility of order book:

      • Cumulative bid quantity of 100% margined orders as well as non-margined but non-cancellable orders shall be made available to the market throughout the trading session. The order book shall display two sets of orders, cumulative orders/bids with 100% margin and cumulative orders/bids without margin.
      • Indicative price shall be disclosed to market throughout the trading session. The indicative price shall be calculated based on all bids/orders.
Apart from above, the Board also took the decisions with respect to amendments in Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, with respect to Infrastructure Debt Fund (IDF), Securities and Exchange Board of India (Stock-Brokers and Sub-Brokers) Regulations, 1992 for the purpose of introducing debt segment on stock exchanges, SEBI [KYC (Know Your Client) Registration Agency] Regulations, 2011 and SEBI (ICDR) Regulations, 2009 for enabling two-way fungibility of IDRs.
 
RBI Updates

Reporting under Foreign Exchange Management Act, 1999 (FEMA)
Today, a huge number of Indian entities are engaged in various transactions relating to foreign exchange which are governed by FEMA, 1999. Foreign Exchange Management Act, 1999 and the various regulations issued by the Reserve Bank of India stipulate various reporting requirements on the companies engaged in foreign exchange transactions. Every company engaged in the activity involving foreign exchange is required to do the reporting compliances within the stipulated time period. Penal provisions are applicable on the company for every late or Non-filing of returns by the Company.
While encountering various cases of late and non-filing of various returns, on the basis of explanations and evidences sought by the Reserve Bank from company in respect to the non-compliances, the Reserve Bank came across of the fact that most cases occur due to the omission and commission of Authorized Dealer bank.
It has been observed that most cases of late or non-filing relate to ECB, ODI and FDI. Therefore, Reserve Bank of India vide A.P. (DIR Series) Circular No. 76 dated 17th January, 2013 has issued strict direction to the Authorized Dealers to take necessary steps to ensure that checks and balances are incorporated in system relating to dealing with and reporting of foreign transactions so that contraventions of Provisions of FEMA, 1999 attributable to the Authorized Dealer do not occur.

Issue of equity shares under the FDI scheme allowed under the Government route
As per the extant guidelines, Indian Companies are allowed to issue equity or preference shares against Import of capital goods/ machineries/ equipments (including second-hand machineries), subject to compliance with the following conditions:

  1. The import of capital goods, machineries, etc., made by a resident in India, is in accordance with the Export / Import Policy issued by the Government of India as notified by the Directorate General of Foreign Trade (DGFT) and the regulations issued under the Foreign Exchange Management Act (FEMA), 1999 relating to imports issued by the Reserve Bank;
  2. There is an independent valuation of the capital goods / machineries / equipments (including second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents /certificates issued by the customs authorities towards assessment of the fair-value of such imports;
  3. The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity; and
  4. Applications complete in all respects, for conversions of import payables for capital goods into FDI being made within 180 days from the date of shipment of goods.
Reserve Bank of India Vide its A.P (DIR Series) Circular No. 74 dated 10th January, 2013 has amended the provision and has disallowed to issue equity or preference shares against import of second hand machinery. The amended provisions are given here under:
Indian Companies are allowed to issue equity or preference shares against Import of capital goods/ machineries / equipments (excluding second-hand machineries), subject to compliance with the following conditions:
There is an independent valuation of the capital goods / machineries / equipments (excluding second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents /certificates issued by the customs authorities towards assessment of the fair-value of such imports;
All the other conditions will remain same.
 


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